“Yellen Props Up Stocks” And Other Delirious Data Points

Alarm bells went off: “Yellen props stocks,” the headline read. Somebody needs to. Politicians in Washington are actively contemplating how to most effectively send the largest and brokest debtor in the history of the universe into default. Corporate revenues can’t keep up with inflation. Earnings estimates and actual earnings growth plunge. And the S&P 500 soared 16% year to date.

The first of the S&P 500 companies to report was Alcoa. Its aluminum products are used in autos, air craft, beer cans.... A bellwether. So analysts fawned over its results, and investors swarmed into its stock, surrounded by talk of growing demand, etc., etc. It did report a profit, due to cost cutting, of 2 cents a share, which rose to 11 cents after all the “special items” were backed out, to then exceed expectations, which themselves had been feverishly lowered beforehand. This accomplishment was based on “solid” revenues of $5.765 billion, down 1.2% from a year ago. “Alcoa Gets Earnings Season Off to the Right Start,” is how a headline described the phenomenon. At first, I thought it had been glazed with irony.

Then there was H-P. The computer maker didn’t even report earnings. CEO Meg Whitman hyped the company at a meeting on Wednesday. There’d be “pockets of growth” in 2014, she raved, revenues might actually “stabilize,” and she felt “comfortable” with H-P’s progress. Great news.

In fiscal 2013 ending this month, revenues are expected to skid 7.4%. CFO Cathie Lesjak then explained what Whitman’s “pockets of growth” and “stabilize” meant: revenues would continue to skid in fiscal 2014. On this glorious note, the stock soared 8.9%. It’s up over 48% for the year, after having nearly doubled at its recent peak in August.

“Meg Whitman seems to be a lot more optimistic than we are,” retorted Jim Chanos, President of Kynikos Associates, on CNBC, the morning after. “They’re now talking about revenue declines in 2014. That’s not what they were saying before.”

“So, in effect the guidance keeps coming down at that company,” he said – which has been a pandemic corporate disease over the last few quarters. “They have a lot of different businesses,” he said. “They have enterprise, they have printing, they have PCs, but all of these businesses are declining right now.”

The litany continues. Costco, one of my favorite places to shop – I ram people that clog up the aisles during their Sunday family outings – reported its revenue debacle on Wednesday. Net sales climbed an imperceptible 0.8% in the fourth quarter over prior year, after they’d grown at their more habitual rate of 7.9% in the third quarter. Something was off. The company blamed foreign currency fluctuations, but hey, foreign currencies always fluctuate.

Safeway reported its debacle on Thursday: earnings down 58%. It lowered its earnings estimates. It cut its capital spending target – thereby cutting revenues for other companies; it’s hard to grow an economy on the basis of corporate cost cutting. It has been announcing a slew of strategic moves, including selling its Canadian operations. It threw another goody into the fray: exit the Chicago area. And revenues? Increased 1.1%, about half of the rate of inflation. The stock jumped 6% afterhours, after doubling over the last 12 months.

Gap also entered the confessional on Thursday. September sales were flat. Same-store sales were down 3%, when hype mongers had expected a 1.6% rise. September “proved to be somewhat challenging,” CEO Glenn Murphy said blandly.

Nine retailers still report monthly same-store sales, and if that small sample is representative of the larger retail environment, September ended the back-to-school season, the second most important selling season, with a whimper. Together, they posted a 1.6% increase in same store sales, below the rate of inflation, as opposed to the estimated 3.1% increase, and as opposed to the actual 5.5% increase last year. Cited: weak mall traffic, fierce competition, waning consumer confidence, whatever. The month just sucked. Worrywarts are beginning to fret about the upcoming holiday season.

At least one sector is still strong. Auto sales have been booming all year, actually for the last several years, with double-digit year-over-year growth rates, including over 20% so far this year, goosed by ultra-cheap car loans. The auto industry is a huge part of manufacturing, service, and finance. It accounts for nearly 20% of all retail sales. So thank God sales are booming.

I mean, were booming. In September, they dropped for the first time this year, down 4.2%. The industry blamed Labor Day, which was counted in August this year and in September last year (something they largely failed to point out in August). Remains to be seen if this was just a blip related to Labor Day, or if consumers are throttling back their enthusiasm for the one major sector that was still holding up the retail sales – and a good part of manufacturing.

Some companies will report strong revenue growth, and we’re looking forward to that. But there will be many others that will report flat or declining revenues. None of this – not crummy revenues, not the collapsing earnings forecasts, not the government shutdown, not the threat of a politically engineered default by the largest and brokest debtor in the history of the universe – can apparently rattle this stock market.

Because it is now held up by its one and final prop, a jerry-rigged, haphazard device with destructive side effects. Without it, the market would fall over: the vague promise of endless money printing by the Fed. Soon-to-be Chairwoman Janet Yellen is the new incarnation of that religion. She has been a big proponent of the Fed’s QE binges and zero-interest-rate policy. And the markets expect her to prop up trillions of dollars in inflated value with unrelenting enthusiasm. A scary thought.

Love the comment on Costco shopping as I can't stand shopping their anymore as the combination of clogged shopping lanes and endless over consumption promotions have warn me out. If Costco really wants my business, then they should have a "free ram the stupid customer's shopping cart day" as hell, I might even pay for this perk.

I understand that for familes, Costco might offer some quality deals but with changing demographics related to the Baby Boomers aging (translation, down sizing and consuming less), younger people delaying/deferring marraiges and families, stealth inflation very evident in the food industry (think smaller volumes for the same prices), and competition coming from every corner of the market now (think .99c stores, etc.), I'm not a fan of the big box retailers such as Costco, Wal-Mart, and others. Unlike Sears and JCP which built business models on the middle class (which has now effectively been eliminated from the US economy), these retailers built huge footprints that drove out countless small businesses. Now, business is fighting back and has build smaller footprints with better service and competitive pricing to out "compete" these giants. Don't like their models at all but in addition to the point this author makes about the state of the economy and its impact on retailers such as Costco, I believe competition is really beginning to bite into their performance but in addition, consumer buying habits. With household budgets very tight, large purchases (which usually happen at Costco) are curtailed in favor of smaller, more frequent "cheap" purchases at the local $ store. Consumers don't have the means to tie up cash in "inventory" that may sit on their shelves for a month.

But the key point really comes down to the state of the consumer. Without real income growth (which has actually been negative the last four years) and any real sense of job security/opportunity (as most new jobs don't offer these elements), all of the hype and joyful noice pushed on the consumer during the past three years about a recovering economy is now beginning to fade. After a brief period of shock from 2008 through 2010, the consumers became addicted again on cheap, no strike that, free money. Zero % auto loans, buy now with no interest until 2100 furniture deals, a student loan binge, you name it. The problem is that consumers are once again having to actually "repay" debt, a rather novel concept, against negative wage growth.

The short lived recovery has been built on a very weak consumer. One that has experienced negative wage growth, built no equity in home prices (as these parties are now renters, leasing the properties from the slum owners on Wall Street), and watched whatever wealth they had left be transferred to the 1%. The current decline in consumer confidence is not a surprise but the real figures to watch are continued auto sales (absence channel stuffing) and larger ticket purchases which consumers tend to finance (as renters have far less incentive to improve properties as the value increase passes through to the landlords). If the average consumer isn't exhausted yet, they will be soon taking the US economy right back to where it was in 2009.